Chingo De Dinero

Finally, I stopped screening the hard way. If you have read some of the other information I have written, I think Enterprise value is not valued as much as it should. You hear PE all of the time, but miss the cash position, either positive or negative.

I used to screen for PE and price to book, then look at individual stocks and pick out those with a ton of cash and little debt. I just noticed today, a great measure, not perfect, but good, Enterprise Value / EBITDA. If you didn’t know EBITDA, is Earnings Before Interest Tax Depreciation and Amortization. My way to interpret this, how many year will it take for the company to buy itself. For example, NCTY or The9. They have an Enterprise Value / EBITDA of roughly 3.588. To break this down, the Market Cap is 630 MUSD, they have 316 MUSD cash, 0 debt and have EBITDA of 88.18 MUSD. This means, if they did a full buyback with their cash, then used their profit to buy back shares, they could purchase the whole company in 3.588 years. Of course, this will not happen, and you need working capital, and to reinvest in the business, but man, this is a great way to tell price. Also, this is a stat Yahoo keeps, so you can run screeners off of it….so much time to be saved. Of course, you have to factor in growth, but that isn’t too hard, just look at the analyst estimates, not totally accurate, but will give a flavor.

I was talking to a friend the other and somehow this came up. If you know anything about markets and how they work, you always have to have forces from different sides to make sure everything works smoothly (eg buyers and sellers). If one side gets very weak, things can get out of balance. Extending it, does this work to keep the poor and rich in check?

So, what I am wondering, is do we need a government, that is run on a basis where each person gets a vote, to counter act the free-market economy, which is run by the wealthy. Do we need a democratic government to keep us from having something like the French Revolution? Do we need a strong Free-Market Economy to keep us from turning into Cuba?

I think so, just based on how it seems to be working. The US is not too dominated by the government, resulting in free hand-outs and economic stagnation, but again, it is not too dominated by wealthy businessmen, and full of monopolistic trusts. At the extreme for both, the country is run by a very few people. So, to keep either from happening, you create these two forces that disburses the power, or at least keeps enough conflict to maintain competition. For the record, when I say monopolistic trusts, I am not talking about the Standard Oil, JP Morgans, etc. I don’t think they ever reached the serious stage.

Let me conclude with a little analogy. If you think of people as states, and people as money (a little weird). So you have 50 people, and 300 million for everyone’s wealth. Everyone gets 2 votes (Senate). But, they also get a certain number of votes based on the amount of money they have (house). So, everything takes two votes, one based on just being a person, and the other based on wealth. Mr. California gets the same power as Mr. Rhode Island for the first vote, but in the second vote Mr. California gets a ton more power. So, in the end, nether party can be hurt too bad. The rich cannot do things that hurt the poor, and the poor can not do things that hurt the rich. There you go, the balance in action. Man, the people who wrote the constitution were on their game.

If you have read anything else I have written, it doesn’t take long to realize I like capitalism, and think it is soooooooooo much better than any other economic structure.

The one thing that always gets me, and is capitalisms one weakness is commons. When I say commons, I mean the air, water, roads, basically everything that isn’t really owned, but is used by everyone. How do we all maximize ourselves, while still thinking about other people, very hard to do. But, it can be done, you just have to be creative, and create some kind of competitive environment to self-regulate it.

The best place to look at examples is telephones and power. Companies are given monopolies over the telephone system, or power, which are kind of quasi-commons. I wish I had some success stories, but even the good news I hear isn’t so good. It always goes back to government control…which in a Democracy I add is somewhat market driven (at least compared to other forms of government).

Another good example of trying to solve the problem of the commons is carbon trading. Make it a market, where it will result in the best actions taken, without the government telling what the best actions are.

If you can solve this problem, I am sure you will win a Nobel Peace Prize, and everyone can start using a Laissez-Faire system. On that note, I do think the only downfall to Laissez-Faire is the commons, the other issues, which are somewhat related to commons, bank regulation and all of that, and not a real weakness, and do not need government intervention. Also, it is a French word, automatic minus 10 points.

Although it is a big issue to solve, it can be done, maybe not directly, but in workarounds. The best example that I have is the telephone. So, we have these monopolies, which are highly regulated, and not a typical capitalistic thing. BAM, here comes the cell phone, everything has changed. It is a very competitive market, and no more issue with the quasi-commons telephone issue. Check, Check-mate!!!